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Major Q & A

(Containership Business)
Q1. Please let me know what you think freight rates will be in 4th quarter.
A1. We think freight rates will be 1 or 2 points higher than 3rd quarter in both the  Transpacific and Asia-Europe trades.

Q2. Please describe the current state of freight rates and the supply-demand situation for Container shipping.
A2. The January rate restoration is still proceeding as planned.
 In a typical year, winter season sees lower volumes and downward pressure on rates, but this year has not shown much reduction and remains steady at a certain level.
 Due to congestion on the North American West Coast, there are strong requests to ship via East Coast, resulting in markedly higher freight rates to the North American East Coast.
 Regarding supply and demand for container shipping, less than 1% of all fleets are currently idle and the problem of surplus space has been mostly resolved. Supply and demand for Container shipping is currently in balance.

Q3. What will be the trend for freight rates moving forward?
A3. We are planning to restore freight rates before February 18, the peak of the Chinese New Year rush. It is likely that we will reassess rates in accordance with the decline in freight volumes after the Chinese New Year.
 However, the Chinese New Year of 2015, February 18, is later than in average years, meaning that reduction in freight rates would have a limited effect on the profit in the current fiscal year.

Q4. Has the congestion on the North American West Coast had any negative effect on your cost situation?
A4. Although there were major delays last year, the situation this year is significantly worse. For example, we have hired four ships on short-term charters to maintain service, which has been an expensive additional expenditure.

Q5. Please describe state of annual Service Contract negotiations for Asia-Europe routes.
A5. Contracts with European clients that were renewed in January are described as being better than last year’s contracts, but the improvement is not major.

Q6. Ordinary income for 3rd Quarter was 8.7 billion yen. Why will this drop to 0.3 billion yen in the 4th Quarter?
A6. The reason that ordinary income is anticipated to drop by over 8 billion yen is that, first of all, 3rd Quarter income included 2-3 billion yen in foreign exchange gains that are not anticipated in the 4th Quarter. Additionally, 3rd Quarter figures included 3 billion yen income from the sale of chassis in North America, and 4th Quarter will have no such sales. Finally, 4th Quarter includes seasonal factors such as fewer loaded containers and additional costs from the congestion at North American West Coast ports.


(Dry Bulk)
Q.  Please explain about market exposure of Capesize fleet in the future.           
A.. We think spot exposure of our Capesize will be about 10%.


 (Offshore Energy E&P Support & Heavy Lifter)

Q1. The offshore support vessel business has suffered due to foreign exchange revaluation losses, but has a profit been achieved operationally?
A1. An operating profit has been achieved at K Line Offshore, which is engaged in the offshore support vessel business in Norway. However, foreign exchange revaluation losses (non-operational) resulted in deficit of ordinary income.

Q2. Will the drop in crude oil prices not cause negative operating profit next fiscal year?
A2. Although the number of operating shale gas rigs in U.S. has dropped, the number of
rigs has not changed in the North Sea area where K Line Offshore’s fleet is mainly working. There have been some requests for streamlining due to drop in oil prices, but we do not anticipate operating deficit in the next fiscal year.


(Others)
Q1. When will the actual average unit price for bunker oil reach current market levels?
A1. We use moving-averages method to calculate income and expenditures, so it requires about two months to reach current market price by mixing higher price of previously-acquired bunker oil stores and the low prices of recent bunker oil purchases.
I believe that current market prices will be reflected in our budget by about April.

Q2. Please explain the make-up of the non-operational 7 billion yen in foreign exchange gains that occurred in the 3rd Quarter.
A2. Primarily, both containership and bulk carrier business experienced gains of over 10 billion yen, 2-3 billion yen of which was in the containership business.
 Meanwhile, offshore support vessel business incurred over 4 billion yen in foreign exchange losses.

Q3. Do you anticipate foreign exchange revaluation losses in the 4th Quarter?
A3. The exchange rate at the end of December was 120.55 yen. Assuming that this rate will be 118 yen at the end of March, we anticipate about 3 billion yen in foreign exchange revaluation losses due to yen appreciation.

Q4. What extraordinary losses are you accounting for in the 4th Quarter?
A4. We anticipate approximately 4 billion yen in extraordinary losses from the reversal of deferred tax assets due to tax reform, and an additional 10 billion yen in restructuring costs that are necessary to prepare for future reductions in our charter hire rate burden.

Q5. Aside from bunker oil and exchange rates, what other factors will affect income both positively and negatively in the next fiscal year?
A5. We anticipate that the introduction of the five new 14000-TEU containerships will improve profitability from the second half of the year.
 New next-generation 7,500 RT car carrier vessels, which are capable of handling “high and heavy” loads, will be delivered next year. These are expected to have a positive effect as well.
 Additionally, market conditions for oil tankers have improved and this business has  turned to be profitable. Tankers are expected to contribute positively to income next year.  I believe that only bulk shipping business will contribute negatively to income.

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